Tips to avoid over-indebtedness | Debt Consolidation

Tips to avoid over-indebtedness | Debt Consolidation

Indebtedness is a kind of endemic evil of the Spaniards. A characteristic of most domestic economies, in which this issue has ended up being considered normal. Even the Public Administrations (both national and regional and local) are the ones that, in this aspect, have not set an example and tend to present some inadmissible debt indices. All this leads to the start of over-indebtedness, a negative phenomenon typical of economic crises and whose effects may also be related to certain trends when applying for credits online.

Not in vain, we can check this bad practice in the delay of the payments to suppliers by these Public Administrations; which undoubtedly contributes to break the payment chain and transmits economic problems of all kinds to companies and individuals.

This context is very dangerous for any economy, whether domestic or territorial. We will focus on the first case and analyze how to avoid it and ensure that the application for quick loans does not contribute to aggravate an already complex problem.

The over-indebtedness and its relationship with online loans

Getting into debt is a relatively common bad habit in Spain. It may seem complicated to fight a way to develop in the field of personal finance that seems to have a source, practically, cultural. However, we can clarify that it is totally avoidable to be indebted.

In addition to the aforementioned tendency to hoard some debts regularly, the Spanish citizen suffers from the inherent risk of cyclical and structural crises, such as the one that was recognized in 2008. In the framework of this, one of the most notorious problems was the election of financial products that implied a strong long-term debt, such as mortgages.

Traditional banks granted a large number of them perhaps without requiring the appropriate requirements to guarantee their returns. Unable to deal with them, many citizens ended up facing considerable debts. Another consequence of this situation has been the worsening of the conditions that banks have set to grant their current loans, which has caused a certain bottleneck in access to credit.

Quick loans offered by credit institutions

In fact, this context is behind the growing popularity achieved by the quick loans offered by credit institutions alternative to conventional banks. However, the conclusion about the lower severity that they demand when requesting guarantees (regular source of income, instead of guarantees, payroll or absence of lists of defaulters such as ASNEF and RAI) does not mean that one can request them “cheerfully” and feeding foolishly the chain of indebtedness.

Debt can be relatively common in times of crisis, marked by the first maintenance of a similar level of spending and a drastic reduction in income. Over-indebtedness, on the other hand, implies not having taken the appropriate adjustment measures to deal with this situation. For example, in the case of having lost the job, it would be necessary to proceed to an effective decrease in expenses.

If the debt is produced by an increase in current expenses,

These, being monthly, allow to reduce their impact in the medium term and operate with economies of scale. However, it is also possible that unforeseen or exceptional expenses have occurred. We are going to focus on the latter.

Therefore, we must avoid compulsory or accessory purchases and we have to choose the right financial products. We refer to those whose conditions we can meet, that is, whose amounts (interest included) we have the capacity to repay.

For example, if our problem of indebtedness comes from an increase in current expenditures, it would not make sense to resort to microcredits. Abusing these financial products, quick money for specific economic needs, would cause us to over-indebted ourselves. This problem would involve trying to access lines of credit in the longer term.

The microcredits have been devised to undertake urgent expenses, but they have not been designed to cover recurrent expenses in the medium term. Using them for these tasks would entail paying interest too often, which would end up being counterproductive for the domestic economy in question.

In the following lines we recommend some cases in which the utility of opting for microcredits is evident:

– To pay a fine whose prompt payment reduces or eliminates the money to be paid as interest for late payment.

– Get a product on offer whose price will rise ostensibly within a week.

– Pay for the realization of some essential works for the approval of the opening license of a local or offer a new service, which implies the achievement of new income.

In all these cases it would be justified to resort to microcredits.

Some tips so that the quick money does not make you get excessive debts

Finally, we recommend carrying out an intelligent debt, that is, that does not exceed the ability to respond to payment obligations that are periodically generated. In this sense, it is practical to take into account an indicator: the indebtedness rate. This, which supposes a division of all the incomes (salaries, rents, etc.) among all the monthly percentages to be paid as credits, must never exceed 30%. If the debt ratio exceeds this percentage, adding the installments of a new loan to the monthly expenses would entail over-indebtedness.

Apart from controlling the levels of this rate, we can avoid over-indebtedness through a serious analysis of our finances. For example, unifying the debts that we have and paying all the payments that could be giving rise to the collection of default interest. Likewise, a well structured planning and with objectives set in the medium term can lead to savings of 10% per month.

Finally, an appropriate measure to avoid over- indebtedness is to choose the appropriate financial products, which may depend on making the appropriate comparisons between them using the tool provided by the Atrapacredito website.